




Variance is a measure of volatility. Variance is calculated as the average squared deviation from the mean. The Capital Asset Pricing Model uses variance as a measure of investment risk. Investments with higher volatility (variance) have greater risk. CAPM postulates that the risk (variance) of an investment portfolio consists of both market risk and specific risks associated with each asset. While market risk is unavoidable, portfolio variance can be minimized and the risk associated with specific assets reduced if the investor owns a diversified mix of assets. Most financial advisors seek to minimize portfolio variance for their clients by recommending that they invest in a diversified portfolio which includes both large and small market capitalization domestic stocks, as well as bonds, international equities and real estate.
Rate this variance definition...




Where is the market headed? The answer may surprise you. Find out with the exclusive & Barron's recommended charts of Chart of the Day. 

Popular Terms: diluted share, real GDP, exdividend, FICO score, option premium, Zero Cost Collar, whollyowned subsidiary, required rate of return, FTSE, LIBOR, labor relations, 144a, EBITDA, irrevocable trust, balance sheet, risk management, 401a, 1035 exchange, annual return, retained earnings, debt service coverage, 1031 exchange, Key Rate Duration, dividends payable, implied volatility, class C shares, quality assurance, in escrow, deferred revenue, minority interest, exdividend date, reverse mortgage, per diem, APR, liquidity ratio, current ratio, margin rate, cancelled check, open position, stock market close, VIX, inflation, stock split, command economy, limit order, phantom income, covered put, average price per share, deferred tax


 